- Today’s main news: Huge spike in deposits after Lending Works launches IFISA. Public-private partnership forms Online Lending Policy Institute.
- Today’s main analysis: How private debt/alternative credit boosts income, risk-adjusted returns.
- Today’s thought-provoking articles: What roll-back of Dodd-Frank means for MPL. An end to P2P wholesale lending. BondMason calls for end to provision funds.
- Private-public partnership forms OLPI. AT: “This is an interesting approach to dialogue concerning MPL innovation, regulation, and growth. Where the Marketplace Lending Association exists primarily for the benefit of lenders, the OLPI seems to have its focus on consumers. Both attempt to influence public policy, but they different paths.”
- What rollback of Dodd-Frank means for MPL. AT: “I completely agree that regulation legitimizes the industry, but I am concerned that over-regulation can kill innovation. On the other hand, there is a real danger that protectionist policies can lead to banks reverting back to risky lending practices, hurting consumers, and making it difficult for marketplace lenders to compete. I hope we can strike a fine balance that encourages innovation, fosters competition, and provides more options for consumers.”
- Zoot Enterprises XOR Data Exchange partner on risk mitigation.
- Huge spike in deposits reported after Lending Works IFISA launches. GP:” I expect the huge spike to be investors who were warned and were waiting for the IFISA approval. I doubt 166k GBP per hour is the steady rate of investment now. It would be interesting to compare a 3-months moving average of the investment capital intake speed before and after IFISA approval.” AT: “So the question now is, can we expected similar results as other platforms roll out their IFISAs? I think we can.”
- First major P2P Isa opens. AT: “We’re still waiting for the Big 3 to receive approval.”
- An end to the nascent P2P wholesale lending market.
- BondMason calls for end to provision funds. AT: “What’s wrong with P2P platforms using funds as tools to attract lenders?”
- 19 laptops with customer personal information stolen from GoCardless.
- LendInvest unveils refurbishment product.
- P2P lending on ‘right path’.
- NatWest to offer online investment fund service and robo-advice.
- FinTech Monthly from Tech City News.
- How private debt/alternative credit boosts income and risk-adjusted returns.
- What drives success of crowdfunding campaigns?
- Fellow Finance Group grows by 200%.
- United States
- Unique Public and Private Partnership Forms Online Lending Policy Institute (Yahoo! Finance), Rated: AAA
- What Trump’s Rollback of Dodd-Frank Means for Marketplace Lending (Forbes), Rated: AAA
- Zoot Enterprises, XOR Data Exchange Partner For Risk Mitigation (PR Newswire), Rated: A
- United Kingdom
- Huge Spike in Deposits Reported After Lending Works IFISA Launched (P2P-Banking), Rated: AAA
- First major peer-to-peer Isa becomes available, offering up to 4.7pc tax-free (The Telegraph), Rated: AAA
- An end to the nascent P2P wholesale lending market (Financial Times), Rated: AAA
- P2P investing firm calls for end to provision funds (P2P Finance News), Rated: AAA
- 19 laptops containing customer information have been stolen from fintech company GoCardless (Business Insider), Rated: A
- LendInvest unveils refurbishment product (Mortgage Introducer), Rated: A
- Peer to Peer Lending on “Right Path” as Wealth Managers Seek Quality Investments (Crowdfund Insider), Rate: A
- NatWest to offer online investment fund service and ‘robo-advice’ (Financial Times), Rated: B
- FinTech Monthly (Tech City News), Rated: B
- European Union
- How Private Debt/Alternative Credit Boosts Income and Risk-Adjusted Returns (LinkedIn), Rated: AAA
- What drives the success of crowdfunding campaigns? (Invesdor), Rated: A
- Fellow Finance Group 1 January – 31 December 2016 (Fellow Finance), Rated: B
- Hong Kong government dismisses report ranking city 5th for fintech (South China Morning Post), Rated: AAA
- Banks should embrace fintech boom (The Straits Times), Rated: A
- Korean government to tighten watch over P2P lending (Pulse), Rated: AAA
- Kelvin Teo erases borders with an online lending platform (Asian Review), Rated: A
Unique Public and Private Partnership Forms Online Lending Policy Institute (Yahoo! Finance), Rated: AAA
The Online Lending Policy Institute (OLPI) today announced its formation and the appointment of its first Executive Director, Professor Cornelius Hurley. OLPI will provide a one-stop resource for those interested in Fintech generally and marketplace lending specifically. The OLPI will provide research and education to ensure informed policy and best practices.
The OLPI provides policy analysis, in-depth research, broad educational initiatives (like the successful MPL Policy Summit), and relevant and engaged thought leadership to foster responsible growth of online lending (providing a strong bridge between established financial services and technology knowledge). To that end, the OLPI convenes various stakeholders, facilitates industry consensus, and encourages the development of a regulatory framework that protects borrowers while promoting innovation.
Key activities of the OLPI will include:
- Substantive research that affects the online lending industry
- Publishing white papers, studies, and reports
- Engaging policy makers and industry stakeholders in the creation of forward-thinking public policy
- Commissioning studies to ensure policymakers and those studying the industry have accurate data to rely on
- Hosting the annual MPL Policy Summit to share, educate, and exchange ideas
- Acting as the one-stop solution for all who seek to understand legal and regulatory landscape of online lending
- Providing the tools necessary to ensure responsible innovation in Fintech– OLPI will be a valuable research resource for the various associations that have already formed to advocate for Fintech
To reach its goals, the OLPI knew it was important to be led by an expert in financial services thought leadership that has built a reputation of integrity and innovation with the banking community at large. The OLPI is pleased to announce the appointment of Professor Cornelius Hurley as the first Executive Director of the Institute. Professor Hurley brings more than 35 years of diversified legal, entrepreneurial, and academic experience in the financial sector.
OLPI’s growing roster of members includes founding members Cross River Bank, Boston University’s Center for Finance, Law & Policy, and RocketLoans, among others. OLPI will announce its broader membership, including many leading industry players at LendIt 2017, where OLPI will host a day of legal and regulatory panels.
What Trump’s Rollback of Dodd-Frank Means for Marketplace Lending (Forbes), Rated: AAA
For marketplace lenders, the industry has matured despite a relative lack of federal regulation and uniformity. While it has thrived due to reduced oversight from lending authorities, a wave of deregulation in Washington could be a curse rather than a blessing as it can further erode the legitimacy fintech pioneers have started to garner since the great recession.
While reactionary regulations can hinder economic recovery, Dodd-Frank was structured in a way that made enacting new rules a heavily vetted process.
Bank lending has increased at a rate of 6 percent a year since 2013, reaching a record high of $9.1 trillion in commercial loans in 2016 and JPMorgan increased core loans more than 10 percent across all categories. If the banking sector has struggled under Dodd-Frank, it hasn’t curtailed profits.
Dodd-Frank has made it much more difficult for consumers to gain access to mortgages and other loan products and raised some costs, in turn affecting profitability, particularly among smaller community banks.
Regulation For Marketplace Lenders Creates Legitimacy
Without smart regulation, fintech companies will continue to be at a disadvantage when compared to brick and mortar counterparts, making it more difficult for a still-developing industry to establish itself as a legitimate entity.
Disruptive innovation can often flourish in this vacuum, but there’s a cost. Without the legitimacy that regulation offers, marketplace lending could struggle to be taken seriously as a direct competitor of the established banking system.
The danger lies in overregulation, but we are a long way from that.
Zoot Enterprises, XOR Data Exchange Partner For Risk Mitigation (PR Newswire), Rated: A
Zoot Enterprises has announced that it has formalized an agreement with XOR Data Exchange to provide Zoot clients access to multi-industry data predictive of identity theft and fraud risk. With the rise in online fraud, clients rely on Zoot to identify new ways to support their business strategy and quickly react to new fraud trends.
The partnership will bring a wider variety of predictive data sets and analytics to institutions that rely on Zoot for their platform needs across a wide variety of industries including financial services, merchant services, telecom, insurance, and healthcare. By sharing data through XOR, businesses are reducing credit and fraud losses, while providing additional insight into fraud rings that may target several different industries and establishing the creditworthiness of businesses that may not be identified using traditional providers.
LendInvest unveils refurbishment product (Mortgage Introducer), Rated: A
LendInvest has launched a refurbishment product with interest between 0.92% and 1.1% per month which is rolled up and paid at the end of the term.
The loan is based on gross development value, not loan-to-value – and is available up to 70% GDV.
Customers can take out loans between £100,000 and £2m for terms up to 18 months.
Peer to Peer Lending on “Right Path” as Wealth Managers Seek Quality Investments (Crowdfund Insider), Rate: A
BondMason has published its Market Report 2017 reviewing the trends in the UK peer to peer lending market. BondMason is a platform that provides investors a method to diversify their investments across many P2P lending platforms.
According to BondMason’s research, P2P lending is beginning to see a flight to quality as the industry matures and weaker platforms exit the market. BondMason’s numbers indicate that the UK direct lending market totaled £3.2 billion of lending in 2016. This is an increase of 39% versus 2015 but a drop in growth as the industry grew by 91% from 2014 to 2015.
BondMason believes there is significant room for growth of the online lending sector. While P2P lending accounted for £3.2 billion during 2016, the total addressable market is between £100 to £120 billion in the UK.
NatWest to offer online investment fund service and ‘robo-advice’ (Financial Times), Rated: B
NatWest is unveiling a service for customers to access investment funds online through the bank for the first time, ahead of plans to launch a “robo-advice” service later this year.
The service, called NatWest Invest launches later this month and will allow bank customers who do not wish to pay for financial advice to choose their own funds and invest with a minimum of £500.
Other banks in the UK are planning to follow suit by offering robo-advice. Santander is among the lenders in the process of developing an automated advice service and has invested in robo-adviser provider SigFig.
FinTech Monthly (Tech City News), Rated: B
Monese, an online banking app, raised a $10m Series A round. The app enables non-native citizens to open a UK bank account.
Seedcamp sold part of its stake in money transfer startup TransferWise. This news came shortly after it was reported that US giant Andreessen Horowitz increased its investment in the London-based startup.
And finally, Mastercard has launched a mobile marketplace for East Africa’s agricultural sector. The digital platform, called 2KUZE, meaning ‘let’s grow together’ in Swahili, will enable farmers to buy, sell and receive payments for agricultural goods via their phones.
How Private Debt/Alternative Credit Boosts Income and Risk-Adjusted Returns (LinkedIn), Rated: AAA
Quantitative easing has caused a significant distortion of asset prices and market dynamics. It has had an enormous impact on the price of most publicly-traded liquid assets, causing yields to drop below a level any https://www.crowdfundinsider.com/2017/02/95817-peer-peer-lending-said-right-path-wealth-managers-seek-quality-investments/risk-adjusted return can historically justify. In this context, investors are looking for alternative solutions and private markets offer significant investment opportunities and value enhancement.
Alternative Investments and Alternative Credit have asset solutions that are very different from each other with very dissimilar drivers. Understanding these asset classes requires specialization and expertise. For example, in banks, sub-asset classes such as shipping, trade and commodity finance, infrastructure finance, leverage loans, and leasing are executed by specialized departments and treated as asset classes on their own merits.
Firstly, the active asset managers and institutional investors are providing the alternative sources of credit either directly or through their clients. This began the growth of a credit market along with the traditional bank lending in some sectors. The shrinking balance sheets of banks presented a tremendous opportunity for investors who were jolted by traditional fixed-income securities and needed options for diversification and higher yields.
Secondly, many new so-called Fintech companies in Alternative Lending have entered the market and established business models which are challenging the traditional status quo. They are still small in size in comparison with incumbent players; however, their business model is addressing many current challenges in the financial sector (inefficiency, information asymmetry, maturity transformation).
The increasing participation of the institutional investor market and new platforms are likely to bring more transparency regarding the actual return contribution of different asset classes in the future.
How Does Alternative Credit Enhance Risk-Adjusted Return and Income?
Currently, most liquid fully “institutionalized” asset classes do not offer the appropriate balance between risk and return. Monetary interventions themselves over the past few years have caused a positive return on the most liquid public assets solely as a result of artificial demand pressure.
Contrary to public traditional fixed-income markets, Alternative Credit offers a private pricing differential (PPD) of 0.5% to 5% over the fixed income market, which is an attractive level.
In these uncertain times, Alternative Credit offers a plausible answer: “Going for the safest part in the capital structure and going for shorter tenors.”
- Credit investments currently the highest safety in capital structure.
- Alternative Credit can enable exposure for shorter tenors to self-liquidating assets (trade finance, factoring, supply chain finance).
- Alternative Credit offers a floating rate exposure.
The best feature of Alternative Credit is its due diligence.
Alternative Credit offers portfolio construction opportunities to diversify other asset classes traditionally owned by banks (not mark to market) and segments that are not yet on the public market’s radar.
As equities became too volatile after the financial crisis of 2008, Private Debt became a surrogate for high-yield bonds. In addition, there was a contraction of more than 70% in the AAA-rated bonds and many of them lost their triple-A status (Preqin, 2014). This provided the cornerstone for the development of Alternative Credit, which enhanced the return of the portfolios by offering a combination of higher rates of return and lower risk.
Alternative Credit has already become the cornerstone of investments in many institutional portfolios and has become a regular source of income. It can be concluded that Alternative Credit is the new form of asset class that is expanding quite rapidly, in part due to the shortage of credit created by the credit crisis.
What drives the success of crowdfunding campaigns? (Invesdor), Rated: A
The first article, titled “Success drivers of online equity crowdfunding campaigns” addresses the research question that Andrea so aptly formulated. The question is highly relevant, as a large part of crowdfunding campaigns – both on Invesdor and on other platforms – have not reached their funding targets. Could something be done to increase the probability of a campaign succeeding?
Based on sixty campaigns that had been conducted via Invesdor, we found the following:
1. Campaign characteristics that are pre-determined by the target company – with assistance from Invesdor – are relevant in determining the campaign’s success:
- The lower the minimum investment requirement, the more investors and funds a campaign can be expected to attract.
- Campaign duration is negatively associated with the number of investors.
- Higher funding targets seem to attract larger numbers of investors.
- The availability of financials in the pitch is positively associated with the number of investors.
2. The use of the entrepreneur’s (and Invesdor’s) networks is important for campaign success.
- The more money the target company can raise through its and Invesdor’s private networks during the hidden phase, the more investors and more funds it is likely to attract in total.
- Posting the campaign on social media is a strong predictor of success.
3. The understandability of the target company’s products may play a role in success
- The results indicate that companies that offer consumer products, rather than products targeted to other businesses, may be more likely to conduct successful campaigns.
The results presented here are based on an aggregate assessment of campaigns and investments.
Fellow Finance Group 1 January – 31 December 2016 (Fellow Finance), Rated: B
2016 was a year of rapid growth for Fellow Finance. The number of platform users grew 220% and the total amount of intermediated consumer and business loans in Finland and Poland was above 50 million euros. This growth resulted in the overall loan volume exceeding 90 million euros which strengthened Fellow Finance’s position as the leader of the crowdfunding platforms in the Nordic countries and with 4,3% market share in continental Europe (source: Liberum Altfi Index). In Finland, Fellow Finance’s market share was over 30% of the whole crowdfunding market (source: Ministry of Finance of Finland). The average of annual yield for investors was 11%.
Hong Kong government dismisses report ranking city 5th for fintech (South China Morning Post), Rated: AAA
The government has dismissed a research report ranking Hong Kong only fifth last year among leading fintech hubs, saying the study did not directly compare financial technology development but rather financial and business environments as a whole.
During a Legislative Council meeting on Wednesday, finance sector legislator Chan Chun-ying asked the government why Hong Kong ranked three spots behind rival Singapore – which ranked second – in the report by global accounting firm Deloitte.
Banks should embrace fintech boom (The Straits Times), Rated: A
Fintech complements rather than threatens banking institutions. In my experience, banking has always been about technology, so today’s fintech innovation boom represents evolution rather than revolution for traditional banking. It is supplementing and diversifying the existing financial system – not replacing or disrupting it.
If we look closely, fintech is currently only focusing on a mere fraction of the financial services spectrum. To date, much of the focus of fintech has been on retail banking services – lending and financing along with payments-related products and services, where mobile and e-commerce has led to real demand from consumers.
Similarly, peer-to-peer lenders appear to be more focused on small businesses and higher-credit-risk borrowers than on mainstream banked clients.
Korean government to tighten watch over P2P lending (Pulse), Rated: AAA
From the second quarter, the government plans to toughen watch and scrutiny on peer-to-peer (P2P) lending service in burgeoning demand in South Korea.
Currently, moneylenders with assets worth at least 12 billion won ($10 million) fall under the broad state regulation. Smaller lenders can run money business upon registering with local governments.
Under a new act that would go into effect in the second quarter, small lenders also would have to comply with state regulation and watch.
Kelvin Teo erases borders with an online lending platform (Asian Review), Rated: A
In January last year, Riza Fansuri was in a quandary. The 37-year-old, who runs a small food supplier in a Jakarta suburb, wanted to develop new products, but that would take money. He tried applying for loans at banks, but they all turned him down because he could not provide sufficient collateral.
Desperate for help, he turned to a website for peer-to-peer lending, a method of debt financing that allows individuals to lend and borrow money directly from each other online instead of borrowing from banks. Half in doubt, he applied for a loan, and a week later, he managed to secure the 100 million rupiah ($7,485) needed to carry out his plan. His company successfully created two new products — instant ice cream and pudding mixes — that now account for 40% of its sales.
The website Fansuri used is run by Funding Societies, a fintech startup that operates in Indonesia, Singapore and soon in Malaysia. The company was founded by Kelvin Teo, a graduate from Harvard Business School, and Reynold Wijaya, an Indonesian classmate from the school. In less than two years, the company has arranged more than 360 loans worth a total of $19 million.